Without a doubt, personal loans are one of the most popular types of loans that people avail in India. There are many reasons why people prefer taking personal loans rather than other forms of credit. Firstly, the lenders do not have any restrictions on the end use of the funds you get from personal loans. Many people use personal loans to fund emergency expenses like paying hospital bills, buying new business machinery, paying credit card bills, or settling long-standing debt.
The second important reason why personal loans are so popular is that they are unsecured loans, meaning you need not provide any collateral or security to the lender against the amount you borrow. As there is no collateral involved, the documents required for a personal loan are far less compared to home loan or car loan.
Today, with many lenders offering personal loans, getting the funds sanctioned is quite easy. Lenders also have simple eligibility criteria for personal loan. However, there are a few things you must know before you approach the lender. Here are a few handy personal loan tips that work like a charm in helping you get the funds without any hassles.
Tip 1 – Assess your needs
Before you approach any lender for a personal loan, take time to assess why you need the funds. Remember, a personal loan is a big financial commitment; you must pay the EMIs (equated monthly instalments) on time for the specified period. You must evaluate if you are taking the loan for a productive purpose.
For example, if you avail a loan to pay off the credit bills or go on a vacation, then you will be adding expenses to your debt list. So, even before you do a personal loan eligibility check, you must ensure that you use the funds more productively.
Tip 2 – Know about the impact of credit score
A high credit score is one of the important criteria for personal loan. Since these are unsecured loans, the risk involved for lenders is high. In order to mitigate the risk factor, lenders tend to favour applicants who have a higher credit score of 750 or more.
If your credit score is high, there are high chances to get your loan approved without any hassles. Based on your credit history, the lender may even offer a loan at a lower interest rate.
Tip 3 – Know about the credit score and interest rate connection
If your credit score is low or does not meet the lender’s minimum score requirement, then they may still approve your loan by levying a higher interest rate. Remember, lenders view a low credit score as a red flag, and it indicates the borrower’s poor repayment capacity.
Even if you get a personal loan despite having a low credit score, you may get a lesser amount than what you applied for. So, as part of the personal loan eligibility check, you must review your credit score and the lender’s requirement and choose the right lender who is willing to offer you the loan.
Tip 4 – Do your homework well
Before you submit your personal loan application to the lender, research the different lenders, the documents needed for personal loan, and other options available. You must not fall for the lender’s gimmicks who may give you the supposedly ‘best’ personal loan offer.
Talk to a few lenders, and there is a good chance that you may find a lender that offers the loan at an affordable interest rate and with better repayment terms than others.
Tip 5 – Avoid paying advance EMIs
Many lenders tend to ask for advance EMIs from personal applicants before disbursing the amount. When you pay advance EMI, you effectively pay more than required. If you come across any lender demanding advance EMI, avoid borrowing from them. Instead, it is best to look for another financial institution that requires you to pay regular instalments only. This is one of the best personal loan tips that will significantly help you.
Tip 6 – Be aware of the prepayment charges
While doing your research about the documents required for personal loan on the lender’s website, you must also check if they levy foreclosure or prepayment fees. Sometimes, you may want to prepay the loan and close the loan account before the actual tenure to be debt-free.
But if the prepayment charges are high, then it is best to avoid making such payments. Choose a lender that allows you to prepay the amount partially or fully without penalty or fees. Tata Capital is one such reputed lender in India that does not levy additional charges on part prepayment of personal loans.
Tip 7 – Repay the EMIs on time
One of the best personal loan tips and tricks to avoid any legal issue with the lender is to make timely repayments. If you delay the EMI payment even by a single day, then it can significantly affect your credit score. Not to mention, you may have to pay a late payment charge if you don’t pay the EMI on time.
Tip 8 – Check for the hidden charges
Before you sign the personal loan documents, make sure to read the terms and conditions carefully and find out if there are any hidden charges that may increase your total payment in the long run. If you find any such charges, then negotiate with the lender and find a way to avoid them.
Tip 9 – Don’t fall for 0% EMI schemes
Some lenders offer 0% EMI schemes in collaboration with retail or lifestyle brands to lure new borrowers. In most cases, such schemes tend to be fake, and the lender scams the borrowers; they don’t reveal the high processing fees until the last minute. So, avoid falling into the trap of such schemes, or you may pay more without even realising it.
Tip 10 – Choose a shorter loan tenure
When you apply for a personal loan, you may be tempted to opt for a longer tenure as the EMI becomes affordable. However, a lower EMI means higher interest repayment throughout the loan term. So, to avoid paying high interest, you can choose a shorter loan tenure. You can use the personal loan calculator to compute the EMI for the period you choose and adjust the tenure accordingly so that the EMI fits your budget.
Now that you are aware of the various personal loan tips, use them to your advantage and enjoy a smooth and hassle-free borrowing experience.